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6 More Stocks for Fast Cash

How quickly are snack makers turning cash into profits?

We've all heard the mantra "cash is king." But a fistful of dollars today deserves the royal treatment more than a wad of cash down the road. We want our companies turning their products into cash -- fast!

The cash conversion cycle Enter the cash conversion cycle. It tells you how quickly a company turns raw materials into products, and sales into cash in the bank. The faster a company can turn over its inventory, the more efficiently it's managing its assets. There are three components of the cycle, and here's how they operate:

Days Inventory Outstanding (DIO) Inventory sitting on store shelves or in stockrooms is not doing the company, or the investor, any good. The number of days the inventory sits there measures how quickly management can get those Speedos off the racks and onto the beaches of Malibu. Obviously, lower numbers are better.DIO = 365 days/(cost of goods sold/average inventory)

Days Sales Outstanding (DSO)Outstanding sales are those the company hasn't yet been paid for; they're languishing in accounts receivable. We want our companies to not only make quick sales, but also get paid for them right away. The faster, the better.DSO = 365 days/(sales/average accounts receivable)

Days Payable Outstanding (DPO)While we want customers to pay us quickly, we want to take our sweet time paying our bills. By paying suppliers slowly, a company has more time to use its cash to earn interest, so we want this number to be higher.DPO = 365 days/(cost of goods sold/accounts payable)

We don't need an average of our bills outstanding here; we just need to know the ending number.

Putting it all together With the three pieces of the puzzle calculated, we can figure out how long a company is taking to get paid for the products its customers are buying from inventory, minus the number of days it takes it to pay its suppliers. The cash conversion cycle, or CCC, equals DIO + DSO-DPO.

Small snacks are more than a mouthful. Sweets and snacks collectively comprise a $15 billion industry, according to The Manufacturing Confectioner. Here's a sweet look at how some of the leading confectionary and snack makers are turning munchies into cash:

Company

DIO

+

DSO

-

DPO

=

CCC

CAPS Rating (out of 5)

Coca-Cola (NYSE:KO)

73.4

+

36.6

-

219.0

=

(109.0)

****

Pepsi (NYSE:PEP)

44.8

+

39.5

-

131.9

=

(47.6)

*****

Wrigley (NYSE:WWY)

89.40

+

35.60

-

107.10

=

17.90

*****

Cadbury Shweppes (NYSE:CSG)

72.2

+

43.7

-

57.3

=

58.6

****

Kraft (NYSE:KFT)

61.2

+

38.8

-

37.2

=

62.8

**

Hershey (NYSE:HSY)

81.3

+

30.1

-

22.5

=

88.9

**

Data provided by Capital IQ, a division of Standard & Poor's, and by Motley Fool CAPS.

Each week, we look for the top companies in different industries that make fast cash, and this particular group seems to have caught the eye of the 29,000-strong Motley Fool CAPS investor intelligence database.

Not every company that makes fast cash will excel. We only want those firms that the CAPS community considers the best. Four- and five-star stocks are the ones the vast majority of CAPS investors believe will outperform the S&P 500.

The Foolish advantageOf course this isn't a list of stocks to buy or sell -- just a jumping-off point for further research. The confectionary industry seems to be favorably viewed by CAPS investors, except for Kraft and Hershey, which also happen to have the slowest conversion time.

It probably shouldn't surprise anyone that both Coke and Pepsi have negative cash conversion cycles. As we've seen in the past, such cash-generating ability usually accompanies firms with market heft and distribution power. Coca-Cola is legendary for its ability to get a product to market and push it through its vaunted distribution chain.

But some Fools might find it surprising how quickly Wrigley can turn a stick of gum into cold, hard cash.

Wrigley's acquisition of the Russian chocolate candy maker A. Kokunov will give it experience which will improve the company's acquisition capabilities as well as increase margins. In five years, their marketing of Lifesavers and Altoids, both purchased from Kraft will produce excellent results. Having 60% of the gum market doesn't hurt either. China's consumption of gum should increase as their population become serious about smoking cessation.

Wrigley is a global giant. Every outlet has Wrigley gum, it is a bit of pleasure for every soul regardless of income. I do have some concerns about the investment with the Russian chocolate maker. However the Europeans do not prefer our milk chocolate bars, so it will strengthen their sales abroad. Wrigley has always paid their dividends as well as the stock splits have been great for my portfolio. New ideas are being incorporated in the company.

So is Wrigley the fix for a portfolio's sweet tooth, or will Coke's mass distribution channel keep things fizzing? Work with thousands of your fellow Foolish investors at Motley Fool CAPS to uncover the best stocks and convert your money into cash profits. It's absolutely free -- get started today!

Author

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow him on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.